The Distributional Effects of U.S. Tax Credits for Heat Pumps, Solar Panels, and Electric Vehicles - Working Paper 32688 - Abstract

Sep 19, 2026

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Over the last two decades, U.S. households have received $47 billion in tax credits for buying heat pumps, solar panels, electric vehicles, and other “clean energy” technologies. Using information from tax returns, the paper shows credits have largely gone to higher-income households: the bottom three income quintiles received about 10% while the top quintile received about 60%. The electric-vehicle credit is most concentrated, with the top quintile receiving over 80%, and the top 5% about 50%. The paper also finds concentration is broadly stable over time, with slight broadening after 2018.

LanguageEnglish

CategoryGeneral

FormatPDF

Pages50

Reading Time18 min

AccessFree to download

Abstract

Introduction

Distributional effects of tax credits

Cost effectiveness and adoption analysis

NBER WORKING PAPER SERIES THE DISTRIBUTIONAL EFFECTS OF U. S. TAX CREDITS FOR HEAT PUMPS, SOLAR PANELS, AND ELECTRIC VEHICLES Severin Borenstein Lucas W. Davis Working Paper 32688 [http://www.nber.org/papers/w32688](http://www.nber.org/papers/w32688) NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 July 2024 We are grateful to seminar participants at UC Irvine and UC Berkeley for helpful comments. This paper is under preparation for the March 2025 National Tax Journal Forum “Tax and Environmental Policy”. We have not received any financial compensation for this project nor do we have any financial relationships that relate to this research. The analysis relies entirely on publicly-available data and all data and code will be posted on our websites upon completion of the project. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications. © 2024 by Severin Borenstein and Lucas W. Davis. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source. The Distributional Effects of U.S. Tax Credits for Heat Pumps, Solar Panels, and Electric Vehicles Severin Borenstein and Lucas W. Davis NBER Working Paper No. 32688 July 2024 JEL No. H23,Q42,Q58 ABSTRACT Over the last two decades, U. S. households have received $47 billion in tax credits for buying heat pumps, solar panels, electric vehicles, and other “clean energy” technologies. Using information from tax returns, we show that these tax credits have gone predominantly to higherincome households. The bottom three income quintiles have received about 10% of all credits, while the top quintile has received about 60% . The most extreme is the tax credit for electric vehicles, for which the top quintile has received more than 80% of all credits. The concentration of tax credits among high-income filers is relatively constant over time, though we do find aslight broadening for the electric vehicle credit since 2018. The paper then turns to the related question of cost effectiveness, examining how clean energy technology adoption has changed over time and discussing some of the broader economic considerations for this type of tax credit. Severin Borenstein Haas School of Business University of California, Berkeley Berkeley, CA 94720-1900 and NBER [severinborenstein@berkeley.edu](severinborenstein@berkeley.edu) Lucas W. Davis Haas School of Business University of California Berkeley, CA 94720-1900 and NBER[ldavis@haas.berkeley.edu](ldavis@haas.berkeley.edu) 1 Introduction The year 2023 was by far the warmest year on record with average temperatures 1.35◦ C above the pre-industrial average (NOAA, 2024) . Increased temperatures, drought, wildfires, and other climate impacts are intensifying the efforts of policymakers to transition markets away from fossil fuels. The Intergovernmental Panel on Climate Change concludes that greenhouse gas emissions must be reduced dramatically this decade if warming is to be limited to 2◦ C (IPCC, 2023) . Economists nearly universally agree that pricing greenhouse gases directly would bethe most efficient approach to reduce emissions. Instead, the dominant approach, particularly in the United States, has been to subsidize clean energy technologies. Relatively less is known about the economic efficiency and, in particular, about the distributional effects of this type of policy. This paper uses data from U.S. federal income tax returns 2006-2021 to examine the distributional effects of clean energy tax credits. During this period, U.S. households received $47 billion in

FAQs

Does the paper find that tax credits meaningfully increase technology adoption?

Overall, the analysis finds little correlation between tax credits and clean energy technology adoption. For heat pumps in particular, there is no clearly discernible impact from significant prior changes in credit availability.

Sep 19, 2026

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